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* Finland wants Greek assets transferred to Luxembourg
* Assets would provide collateral for new loans to Athens
* Greece would be sole shareholder in Luxembourg vehicle
* If Greece defaults, ownership passes to creditors
(Adds link to PDF of Finnish proposal, paragraph 6)
By John O'Donnell and Luke Baker
BRUSSELS, Aug 29 (Reuters) - Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held there as security for new loans to Athens, according to an internal document seen by Reuters.
The plan, drafted in June, remains a central plank of current Finnish demands for collateral in return for providing more aid. If it does not get its way, Finland may pull out of the Greek bailout, sparking renewed chaos on financial markets.
Although small at around 1.4 billion euros, Finland's planned support for Greece is important because its triple-A credit rating adds weight to the 109 billion euro rescue agreed on July 21, the second bailout package Athens has received.
Demands from Helsinki for collateral have sparked requests from countries including Austria, the Netherlands, Slovenia and Slovakia for similar treatment, and threaten to spoil the euro zone's attempt to save Athens from default.
In the document, Finnish officials set out how the Greek government and its privatisation agency would authorise the transfer of assets to a holding company based in Luxembourg that would be used as security for states giving assistance.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ To see the document, click on: r.reuters.com/cyz43s
The privatisation agency would own all the shares in the asset holding company, although the shares would be held in custody by a third party. Since the holding company would be based in Luxembourg, it would operate under Luxembourg law.
Such a move would likely prove controversial in Greece, where the government has strongly rejected suggestions of offering land or company shares as collateral for future loans. It would in effect mean Greece losing sovereignty.
The Finnish proposal would hand over control of a sizeable portion of Greece's assets to a foreign agency, limiting Athens' autonomy in managing its finances and privatising state assets, an area where scant progress has frustrated euro zone partners.
"The Privatisation Agency is managing the AHC (Asset Holding Company) and can use AHC in a flexible way as one vehicle to securitise, manage, develop and privatise assets," reads the Finnish proposal, dated June 23.
As well as acting as a warehouse for Greek property, such a stake in a national phone company or port, the Luxembourg vehicle would ringfence assets so they are not used for other borrowing but instead kept as security for countries offering aid. The Finnish document explains:
"If the market value of the assets of AHC does not meet the collateral requirements or the Hellenic Republic defaults on its loan obligations to the EFSF, the ownership of the shares in custody immediately transfers to the relevant member states," it says, referring to the European Financial Stability Facility, the 440 billion euro bailout fund drawn up last year.
The Finnish plan also flags a possible securitisation of the assets held in Luxembourg, using cash flow generated from an airport, for example, as security for loans.
"The asset securitisation would make both the valuation and the liquidation of the assets much easier," write the authors of the confidential document, which has been circulated to euro zone finance ministries in the form of a "non-paper".
The proposal is among those being discussed by euro zone officials in conference calls in recent days to try to reach agreement on how collateral can be provided to Finland, and potentially other member states, in exchange for new loans.
So far, the Greek government has been slow to start its long-awaited sale of state assets. It promised earlier this year to raise 50 billion euros by 2015, but its failure to properly start the process has frustrated lenders. [ID:nLDE7501CZ] Earlier this year, ECB board member Juergen Stark put a value on the country's assets, which include stakes in Athens' airport, a bank, two ports, and the country's main telephone company, of 300 billion euros ($423 billion). [ID:nLDE74M1ZB]
Tapping this wealth will be difficult politically. Talk of selling state companies prompted protests by workers worried they could lose their jobs in any privatisation.
Militant union members at the country's main electricity producer have warned the government not to pursue a sale.